1. You Are Welcome At Any Session!
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2. NAIC Updates Concepts and Updates
Mark Buehrer, FSA, MAAA, Sr. Actuary, Bruce & Bruce Company
Alice Fontaine, FSA, FCIA, MAAA, President, Fontaine Consulting, LLC

3. Total Asset Requirement – (TAR)
Analogous to various levels of “confidence” in quantity and quality of balance sheet
Conditional Tail Expectation – CTE (70+) reserves, CTE (90+) capital
“Moderately Adverse” – annuities under CARVM may be an exception
Stochastic Economic Scenarios correlated with Insurance Risks
US Statutory Reserves and Capital
Something of a “patchwork” quilt of rules
Various methods and bases
Layers and smoothing mechanisms
Make for difficult earnings / Balance Sheet evaluation
AVR, IMR, Book value accounting

4. Economic View of Balance Sheet
Embedded Value
Market consistent Embedded Value
All enable “market” / “risk adjusted” evaluations of performance
No “perfect” system as new risks continue to emerge and become “insurable” either directly or in part
Gives rise to Life & Annuity Reinsurance Market

5. NAIC bringing Uniformity to TAR
Process beginning in has been deliberate, but steady
Asset-oriented risks (C-1 & C-3) have understandably progressed at a much faster rate due to perceived relative nature of risk
C-0, C-2, and C-4 still not the dominant risks to most members
Reinsurance (internal & external) has absorbed a lot of C-2 for better or worse
Guideline XXX and related “reserve redundant” products
VM – 20 treatment may curtail this somewhat
Factors using risk theory concepts keep gradually ratcheting upward
Fraternal companies not originally the focus of RBC, but even now sideswiped – intentionally or otherwise in the “tax reform” loop

7. Life Actuarial Task Force (LATF) Spring Meeting
Adoptions:
LATF Discussions:
VM-22—Fixed income annuity maximum valuation interest rates
Guaranteed Issue Mortality Table
VM-50 & VM-51 edits to reflect NAIC role
PBR Aggregation of Mortality Segments
VM-31 Phase 3
Model 805 Drafting Group
Other Spring meeting topics
PBR Activity:

8. Adoptions: Several Valuation Manual (VM) Adoptions
Mostly clarifications, but also added granularity to the mortality assumption section
Clarified use of the 2017 CSO preferred Class Mortality table to also use AG42

9. VM – 22 (effective 1/1/2018) http://www. naic. org/cmte_a_latf_vm22sg
Originally effort aimed at entire fixed annuity market
Overall effort reduced to:
Distinct valuation interest rate for large group (jumbo) and non-jumbo
Jumbo rates determined daily; Non-jumbo quarterly
Currently addresses only interest rates for payout annuities arising from:
Settlement option w/ “premium determination date” > 12/31/2017
New annuitizations
Strain at annuitization if aggressive guarantees granted in contract
Rate based on 1) length of “certain” period, 2) life contingency

10. Historic rates from NAIC

11. VM-22—possible changes APF 2018-20: “VM-22 Redline”
Still in discussion phase, with major rewrite of exposure 5/10/18
Intent is to clarify items to address questions that came up 1/1/18 implementation
Also expanding scope to possibly include
All fixed payouts, regardless of host contract
Regardless of issue date of host contract
Maintains ability to use host contract issue date, but only with commissioner approval and demonstration of consistency with investment strategy

12. Questions?

13. Guaranteed Issue Mortality Table: APF 2018-01
A group of tables with various loadings was exposed
Loads ranged from 35% to 75%.
Current exposure uses 75% loading = 2017 CSGI table
APF also includes a definition of “GI”
The exposed amendment proposal form provides that the same GI table may be used for nonforfeiture and reserves. Exposure asks for input on effective dates (optional and mandatory) for transitioning from the 2001 CSO ultimate table.

14. Other VM edits discussed
Experience studies & collector: (VM-50 & VM-51 edits to reflect NAIC role)
PBR Aggregation of Mortality Segments to determine credibility
APF
PBR report - VM-31 Phase 3 - APF
Clarify the VM-31 scope to more explicitly include VM-21 and VM-20 exclusion tests;
Provide additional clarity via rewording and/or reordering of requirements for consistency with VM-20;
Adopted 5/3/18 for implementation in VM2019

15. Model 805 Drafting Group
Fixed Deferred Annuities – Minimum nonforfeiture values
Intent to address inconsistency of application of prospective test among states
Draft Actuarial Guideline and sample illustration of calculation mechanics
Exposed until 5/28/18
Similar to the instructions for IIPRC (“compact” ) filings

16. Other topics under discussion
Simplified Issue Mortality
Accelerated Underwriting
Academy Annuity Reserves Work Group (ARWG) Update
Academy SVL Interest Rate Modernization Work Group (IRMWG) Update
LRWG presentation on VM-20 deterministic reserve considerations for Indexed Universal Life
Impact of Tax Reform on Life PBR Exemption
VM-20 Supplement Edits Submitted to Blanks
C-3 Phase II/AG43 (E/A) Subgroup

17. Other topics under discussion (continued)
APF relating to riders & supplemental benefits (VM-20 Section 2.A, VM-20 Section 3)
APF for VM-26 (Credit) relating to use of credibility for company experience and use of gender and smoker/nonsmoker tables for reserves.
APF relating to NPR for UL policies with multiple secondary guarantees
Academy Life Reinsurance Work Group YRT Issue

18. 2017 PBR Reporting Activity
About Companies filed statements with PBR reserves
both Term and ULSG
Valuation Analysis (E ) Working Group (VAWG) will be reviewing the PBR reports for consistency, concerns, etc.
Should provide public feedback a Winter NAIC meeting (2018)

19. Questions?

20. Life RBC & Tax Reform
NAIC Life RBC compares two calculated items: Total Adjusted Capital (TAC) is compared to—ACL RBC
Academy’s letters focus on possible changes to RBC factors within ACL RBC
pdf
Additionally, TAC for non fraternals is affected in many ways by tax reform (impact on tax reserves and related items)
In general, RBC factors were developed on a post-tax basis

21. Plug for Investment Session
New RBC factors being developed for general use in 2018 and beyond
In large part, due to tax reform
Pre-tax factors for fraternals will be impacted in 2019 due to:
Number of quality notches moving from 6 to 20
Asset concentration expansion
Change in tax rates (35% to 21%)
Pure tax-related change on the order of (65/79 -1) or 18% decrease in factors
Still unclear where this will end up over the long run for fraternals

22. Current status of Tax Reform changes
Grid:
Exposed to June 5/18 with anticipated effective date for 2018 RBC filings
Next NAIC Life RBC WG meeting on June 8th
C-1 bonds – Multiply pre-tax RBC factors by 0.97
Change tax factor to
C-2 life insurance – Multiply pre-tax RBC factors by 0.97
Change tax factor to 0.21
C-3 Change pre-tax minimum factors to , , and
C-4 Change 0.35 tax factor to 0.21
AVR is also being updated to retain consistency with C-1

24. Other Life RBC Topics
Changes to 2018 Life RBC filings Federal Home Loan Bank (FHLB) C-0 charge adopted
Operational Risk charge
Still working on proposed longevity risk charge

25. Questions?

26. Contact Us
Mark D. Buehrer, FSA, MAAA Sr. Actuary, Bruce and Bruce Company
Alice Fontaine, FSA, FCIA, MAAA
President and Consulting Actuary,
Fontaine Consulting